Dichotomy Between U.S. Tobacco Export Policy and Antismoking Initiatives

Published by the Government Accountability Office on 1990-05-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United States General   Accounting   OfRce

For Release         Dichotomy Between U.S. Tobacco               Export    Policy
on Delivery
Expected at         and Antismoking  Initiatives
9:45a.m.    EDT
May 17, 1990

                    Statement    of
                    Allan    I. Mendelowitz,      Director
                    Trade, Enerqy,       and Finance Issues
                    National    Security     & International        Affairs       Division
                    Before the
                    Subcommittee   on Health and the Environment
                    Committee   on Energy and Commerce
                    House of Representatives

GAO/T-NSIAD-80-42                                                         GAO Form 160 (12/87)
Dear Mr. Chairman and Members of the Committee:

I am pleased           to be here today to discuss                      with     you the results         of
our work on the role                of the U.S. government                     in helping     the export
of tobacco        and tobacco          products       and the health              related     implications
of these       activities.1            In recent          years,      the U.S. Trade
Representative            (USTR) has been successful                     in negotiating         removal       of
unfair       foreign      trade     barriers       that      had restricted           the export        of
U.S. cigarettes.              Despite       the fact         that     the cigarette          cases meet
current       trade    policy       criteria,       USTR's efforts               to remove the trade
barriers       are controversial                because of the health                risks    associated
with     smoking.

Our examination            was undertaken           at the request               of the Chairman of
the House Subcommittee                 on Health          and Environment,            Committee     on
Energy and Commerce; the Chairman of the House Subcommittee                                         on
Health,       Committee       on Ways and Means; and other                        Members of Congress.


In some ways, a policy                 level      conflict          exists      between U.S. trade
goals and health            policy      objectives           in regard          to the export      of
tobacco       products.           On the one hand,            federal          resources     are used to
facilitate        the export         of U.S. cigarettes,                 while     on the other         hand,

lTRADE AND HEALTH ISSUES: Dichotomy Between U.S. Tobacco Export
Policy and Antismoking Initiatives  (GAO/NSIAD-90-190, May 15,
the federal       government      has directed         a major         domestic       anti-smoking
effort       and is a participant          in the international               anti-smoking


U.S. cigarette        companies had tried              for many years             to expand their
sales to Japan,        South Korea,         Taiwan,      and Thailand,             whose markets
were substantially           closed     to cigarette          imports.        Smoking is legal
in these countries,            however,     imports      were kept out by high tariffs,
discriminatory        taxes,     and discriminatory             marketing          and distribution
restrictions.         Domestic        demand was largely           satisfied          by cigarettes
produced by national            monopolies.          After     generally          unsuccessful
efforts       to gain access to those markets,                  the U.S. cigarette
companies sought        the assistance          of the U.S. Trade Representative
(USTR) under section            301 of the Trade Act of 1974, as amended, in
eliminating       the unfair      trade     barriers         to U.S.      cigarette      exports.

Access to these markets,               which promises          great      sales     growth
potential,       is important         to the U.S. cigarette               companies because of
the significant        and steady         decline      in U.S.     cigarette          consumption.
Since 1981 U.S. domestic               consumption       of cigarettes             has fallen       by 17
percent.        In 1989, alone,         there   was a 5 percent             decline.

Statistics       show that      the prevalence          of smoking in Japan,                 Taiwan,
and South Korea is higher               than    in the United            States.       While the

smoking rate           in Japan has gradually                  declined,       cigarette         consumption
in Taiwan and South Korea has increased                               since    the removal            of
barriers       to U.S. cigarette                exports.        SoCiOeCOnomic factors,                     such as
rapid      rises      in disposable         income and more women entering                           the work
force,      are generally          considered          to have played           a role         in increasing
cigarette          use in certain         Asian countries.                 In addition,          cigarette
advertising           and promotional            activities       have increased              in terms of
volume and sophistication,                      in some of the markets                that      have been
opened.        concurrent        with     the success of U.S. market                     access efforts
there      has been an increased                 awareness       in Asia of the health
consequences           of smoking and the growth                  of anti-smoking               groups.

Exports      are also         important         to U.S.       farmers      because tobacco             is their
sixth      largest      cash crop and 85 percent                  of tobacco          is used in the
manufacture           of cigarettes.             Despite       reduced      domestic         cigarette
consumption,           tobacco    production          has increased            to meet growing
export      demand.          In 1989, the U.S. tobacco                  and tobacco           product       trade
surplus      was $4.3 billion,             up from $2 billion                 in 1986.

At the same time that               the U.S. government                 has worked to open
foreign      markets         to U.S.     cigarette         exports,      U.S. health           agencies
have supported           programs        with     the objective          of reducing           the
incidence          of smoking.         The Department            and Health          and Human
Services'          (HHS) Public        Health      Service       has issued          several      Surgeon
General's          reports     warning     about the harmful               effects      of smoking.
HHS is also          directing      a number of domestic                 anti-smoking           efforts.

In addition,         the United      States         participates              on a multilateral             level
with     the World Health         Organization               to support         smoking prevention
and health      awareness programs                 throughout          the world.

Thus, we have a situation                  in which one government                    body,    USTR,
negotiates      for     the removal         of import          restrictions            on U.S. produced
cigarettes      as provided         for     by U.S. trade              law.       At the same time,
another      government        body, HHS attempts                  to decrease         the use of
cigarettes         in the United          States       and abroad.             This    circumstance
reflects      a contradiction             at the policy              level     between U.S. trade
policy     and U.S. health          policy.


As mentioned          above,    the United          States         has a growing           trade    surplus
in tobacco         and tobacco      products.               This     improvement         reflects      a
number of factors,             including       the help U.S.                 exporters      received        in
recent     years      in overcoming         foreign          trade     barriers,         and the support
provided      to tobacco        exports       by three         federally           funded market
development        programs.        They are the Cooperator                       Market      Development
Program,      the Targeted        Export       Assistance             Program,        and the Export
Credit     Guarantee      programs.

U.S. Trade Representative                  officials          maintain         that    because
cigarettes      are legally         sold      in the United              States       and abroad,          they
should     be treated      no differently                  than other         products      in trade

negotiations.                The Trade Representative's                         policy          is that      when
petitioned           by an industry              with        a legally         sound complaint               dealing
with      unfair      trade      practices,             it    must act on the petition.
Cigarettes           are a product              that     meets trade            policy          criteria      for
government           assistance          in overcoming                unfair     foreign           trade     barriers.
U.S. cigarettes               are competitive                 on world         markets          and potential
exports       are     lost      as a result             of clearly           recognized            foreign
government           actions.

In its      efforts          to remove unfair                 foreign        trade      barriers,           the     U.S.
Trade Representative                    did not appear to give preferential                                  treatment
to tobacco           products          over other            items.         However,       it      is difficult           to
quantify       these         efforts      for     comparison               purposes      because the U.S.
Trade Representative                    pursues        multiple            cases concurrently                and does
not track           time spent on individual                        cases.

Although       the negotiations                  to remove foreign                   barriers           to U.S.
cigarette           exports      were sensitive,                   at this      time,      there         seem to be no
long-term          adverse       implications                for    U.S. relations               with      the four
targeted       countries.


The Surgeon General                    has determined               that     smoking is hazardous                   to
health,       and the U.S. government                         actively         works to discourage
smoking,       both domestically                  and internationally.                      Over the past                25

years Congress has enacted                        a number of laws concerning                           the health
hazards of cigarettes                    that     include        requiring            health      warnings         on
cigarettes,            banning     all     cigarette            television            and radio         advertising,
and banning            smoking on domestic                 airline         flights.

The Department             of Health            and Human Services               (HHS) has the lead role
in the U.S. Governments's                        efforts        in the area of smoking and
health.        It      chairs     the statutorily                established            Interagency
committee           on Smoking and Health                  which advises               the Secretary              of HHS
on a wide range of these                        issues,        including       the international
health      implication           of tobacco          use.        For      example,        at a recent            World
Conference           on Tobacco and Health,                     the Assistant            Secretary          for
Health      made the keynote               address which strongly                       criticized         the
marketing           activities        of transnational                  cigarette        companies          in
developing           countries.

The U.S. government                supports          the World Health                  Organization           and its
smoking prevention                programs.           Also,       the Overseas             Private        Investment
Corporation,            a government             agency,        has made a policy                decision         to
deny assistance              to U.S. cigarette                  companies wishing                to promote
their      enterprises           overseas         because of the adverse                       health     effects            of

Despite      the government's               active         involvement           in anti-smoking
efforts,      health         issues      were not considered                   during          negotiations            for
the removal           of foreign         trade       barriers        to the export               of U.S.

cigarettes.            And, until              recently,         the Department             of Health         and
Human Services              has been discouraged                      from activities           that     linked
health       issues        with        U.S. cigarette            exports.          For     example,      in
February       1988, the Interagency                       Committee           on Smoking and Health
attempted        to hold an interagency                         meeting        entitled      "Tobacco Trade
Policies."            The Surgeon General,                      the chairman             of the committee,
invited       representatives                  from the Departments                 of State,          Commerce
and Agriculture              to speak on the health                       implications          of recent           U.S.
efforts      to open foreign                   markets      to U.S. cigarettes.                  However,
White House officials,                     some members of Congress,                        and USTR
officials       objected               to the meeting,            claiming         that     the Committee had
no authorization              to analyze            a trade           issue.       Consequently,             the
meeting      title         was changed to VgTobacco and Health                              Internationally,11
and the representatives                        from State,            Commerce, and Agriculture                     did
not attend.            In September 1989, the former                             Surgeon General
testified       at     a    USTR hearing            on the        Thailand         cigarette       petition,
and was critical              of U.S. tobacco                   trade    policy       because it         does not
include      consideration                of     the health           impact     of that       policy.

A   high    level     HHS official                informed        GAO that         the Department             of
Health      and Human Services                    was invited           to participate            in the current
market      access case in Thailand                        and declined            on the basis          that       it
perceives       cigarette               export     issues        as a trade         rather      than     a    health
matter,      and that             it    had higher         priority        matters         to attend         to.


The U.S. government                role       in helping            the export         of cigarettes           and
other      tobacco       products         raises       important            policy     issues.       On the one
hand, the government                  is committed                to help U.S. exporters              overcome
unfair        foreign      barriers          to the export             of legal        products.          On the
other      hand, the U.S. government                         has determined            that    smoking is
hazardous        to health         and is actively                  working       to reduce        smoking and
the use of other             tobacco          products            both domestically            and abroad.
Altering        this     circumstance           requires            a determination            as to what
policies        should      prevail.

If   the Congress believes                    that     trade        concerns         should    predominate,
then it        should     do nothing           to alter            the current         trade     policy
process.         The U.S. government                   can simultaneously                continue         to
actively        help U.S. cigarette                   exporters         overcome foreign             trade
barriers        and continue           to promote                awareness      of    the dangers         of
smoking and further                restrict           the circumstances                in which smoking may
take place.

If   Congress believes                that     health            considerations         should     have
primacy,        the Congress could                   grant        the Department         of Health         and
Human Services             the responsibility                     to decide       whether      to pursue trade
initiatives            involving       substantial                adverse     health     consequences.

Alternatively,            rather   than having          one policy         dominate,      the Congress
could      specifically        require     that    health        matters      be included      in the
interagency        trade      policy     process       so that     health      issues     receive
some consideration             on a case-by-case            basis.         Such a change would
necessitate        that      the Department        of Health         and Human Services
actively       participate         in the interagency             trade     policy      decision
making process.

Mr. Chairman,         this     concludes     my statement.                I will     be happy to
respond to any questions                 you may have.